What is Uniswap?
Uniswap is an example of one of the core products in the DeFi ecosystem, the decentralized crypto exchange (DEX).

DEXs; It aims to solve many of the problems of its centralized counterparts, including hacking risk, mismanagement, and arbitrary fees. However, decentralized exchanges also have their own problems; especially lack of liquidity. This means a lack of amount of money churning around an exchange making trading faster and more efficient.

Uniswap attempts to solve the liquidity problem of decentralized exchanges by allowing the exchange to exchange tokens without relying on buyers and sellers that make up this liquidity.

Uniswap is completely decentralized, meaning it is a completely different type of exchange that is not owned and operated by a single organization, and uses a relatively new trading model called the automatic liquidity protocol.

Uniswap is also completely open source, meaning anyone can copy the code to create their own decentralized exchange. It even allows users to list the tokens on the exchange for free. Normally centralized exchanges are profit-oriented, charging very high fees for listing new coins, so even this alone is a notable difference.

Since Uniswap is a decentralized exchange (DEX), it means users are in control of their funds at all times. Central exchanges require investors to give up control of their private keys, and orders can be recorded in an internal database rather than being executed on a blockchain. This is more time consuming and expensive. By maintaining control of private keys, it eliminates the risk of losing assets when the stock market is hacked.

How Uniswap works
The main difference of Uniswap from other decentralized exchanges is its feature called “Fixed Product Market Creator Model”. This pricing mechanism means that any ERC20 token can be traded on the exchange, provided it is funded with an equal ETH value.

For example, if you want to make an exchange for an altcoin called A token, you initiate a Uniswap smart contract for that token and create a liquidity pool with $ 100 worth of A token and $ 100 worth of ETH.

Instead of linking buyers and sellers together to determine the token price, Uniswap uses a fixed equation: X * Y = K

In the equation, X and Y represent the number of ETH and ERC20 tokens in a liquidity pool while K is a constant. Therefore, the balance between ETH and the token and supply and demand principles are used to determine the price of the new A token.

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When someone buys a token, the price goes up, so tokens in Uniswap can only change if transactions occur. This is similar to a ‘market’ setup in central exchanges. As a result, Uniswap balances the token value and changes it depending on whether people want to buy and sell them.

Since digital assets have grown in popularity, they have tended to be bought and sold in a centralized environment with a trading agent. Advantages here can include fast payment times and healthy liquidity levels, thanks to the high trading volumes enjoyed by the largest exchanges.

Uniswap takes a different approach because users can complete their transactions without an intermediary. This reliable approach supports decentralization and can help prevent censorship, meaning nothing is stopping someone from making a sale. Uniswap also eliminates the concept of Know Your Customer controls, providing a higher level of anonymity. The only thing to show is your public address.

Another advantage of Uniswap is that it includes higher levels of security, especially given how smart contracts that Uniswap is based on go through stringent control measures. The cost of completing transactions may be significantly lower than the main crypto exchanges, suitable for budget-conscious traders. (One disadvantage of Uniswap is the fact that “gas” fees on the Ethereum network have increased recently.)

Uniswap also makes it much easier to bring a new ERC-20 token to the market, and the entrepreneurs behind them do not have to go through the often expensive central exchange listing process. This new token can start trading immediately after pairing with either Ether or Uniswap token. Critics argue that this simplified process can be risky because it makes it easier for fraud projects to enter the market.

Who Invented Uniswap?
Uniswap was created in 2018 by Hayden Adams, who saw a post shared by Ethereum founder Vitalik Buterin and inspired to create the protocol.

What is Uniswap Token (UNI)?
Uniswap did not have a native token when it was first launched, but all that changed with the launch of the UNI token last September.

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